Why is the Progress of Mobile Money so Gradual and Patchy?

I feel like in the last couple of years I have been moving away from the mobile money mainstream, which continues to insist on exuberant optimism in the face of scant results on the ground. I believe in the inevitability of mobile money, but I don’t believe we’re getting there very fast. I am disheartened by the effort and money I see going into projects which to me feel ill-omened from the start. I often joke I seem to have a reverse Midas touch: deployments seem successful until I go there and take a look for myself. They do say that a pessimist is just an optimist with inside information.

So I was very receptive when I saw Susie Lonie ask bluntly in a recent blog post: if everyone wants mobile money, why is it doing so badly? Having rolled up her sleeves to help conceive and launch M-PESA in Kenya and elsewhere, I can only assume she is by nature more of an optimist than I am and she certainly has a lot more inside information, so I take her current pessimism very seriously. I agree entirely with her answers: that most mobile money replicators have not invested enough in the basics of the business, and that the main issue preventing them from doing so is organizational culture.

Photo credit: Jay Bendixen

Supply side: A problem of corporate DNA

Once Mung-Ki Woo, then at Orange and now at MasterCard, explained to me the poor fit of mobile money in a telco’s decision portfolio in an interesting way. Telcos run on two fundamental innovation cycles: a decade-long one linked to massive new network investments (1G, 2G, 3G, etc.), and a quarterly one linked to small service extensions or value adds (a new game linked to the latest James Bond movie release, a collection of cool apps) around the latest first-in-their-market handset launch. Mobile money doesn’t fit these well-worn decisioning models: it’s nowhere near substantial enough to get the attention and treatment of a core network investment, yet it’s too expensive and has too long a payback to look compelling when viewed against other value added services. Moreover, shortening handset cycles leads mobile operators to treat service innovation as primarily a brand-building exercise: it’s more about the launch than necessarily about subsequent usage or even revenues. But mobile money is a volume business which requires high and sustained usage to feed itself. It doesn’t fit.

As regards bankers, mobile money and branchless banking more generally feel like a direct challenge to the basic precepts they have been brought up on: that they need to jealously guard the customer experience by only serving clients at tightly-managed own touchpoints; that they need to build deeper relationships with their clients and eschew transactional models; that they need to be selecting and nurturing higher-value customers rather than serving an undifferentiated mass; that retail payments and money transfers are boring commodities; and that technology is something the bank, rather than the customer, should deal with.

All of these are valid points, and it is true that a poorly conceived branchless banking system can lead them astray. Embracing indirect and self-serve channels while avoiding these pitfalls does require a major redesign of pretty much every aspect of a bank. But banks in underbanked countries will remain reluctant to do so while shareholders are content with current profitability levels, competition is limited to certain niches at the higher end of the market, and regulators do not remove obsolete restrictions that needlessly raise the cost of banking.

Demand side: why don’t people keep value electronically

But my doubts don’t all lie on the supply side. Susie’s premise, that “customers want mobile money,” is hard to test where mobile money is failing to take root, because you cannot expect people to “want” something that they haven’t had a chance to try.

What does trouble me is one behavior I see over and over again even where mobile or electronic banking is most successful: when money transfers into their account, most people withdraw it immediately and in full. Since the money was already electronic, why not keep it in the account for safekeeping or in anticipation of future payments? I worry about this because if mobile money doesn’t convince people as a store of value, it will never become a preferred means of payment.

The standard view is that this is primarily due to lack of acceptance at local shops: why keep money electronic if you can’t use it to pay for stuff? I have a different view: I think it’s primarily because electronic money does not offer the sense of budgeting and control that people want to feel over their money. Dave Birch has observed that people used to like checks because they could keep written records of their expenses: “They weren't really cheque users, they were cheque stub users.” Nice one, Dave. Similarly, we should strive to make the mobile device a money or expense management tool, not merely a payment instrument.

As long as electronic money does not connect with how people administer their money (such as by enabling mental labeling and “jam jarring”), it will continue to be soundly rejected as a primary mechanism for holding value by the majority of people. And if people are in possession of cash rather than electronic money, stores will continue to be reluctant to accept electronic money. But get people to want to hold electronic money, and see how quickly stores will fall into line. Yes, we need electronic acceptance at stores, but don’t expect much payment volume while most people’s electronic accounts are empty. People will continue to make daily payments in the form in which they keep their money.

So yes, Susie is probably right, everyone wants mobile money, but so far really only to make remote payments or to avoid queuing up to pay a bill at the utility office. I am not content with that as a vision, and I am not at all sure that generates enough volume of business to sustain a mobile money ecosystem in many countries beyond Kenya. Part of the failure to replicate mobile money is a failure to tap into large enough pools of existing transactions. Mobile money should be used daily, as a store of value and as a means of payment – these are literally the two sides of the coin.

Comments

Here in Brazil the situation is worse. I developed a simple and inexpensive technology to be deployed within any company to m-payments technology called GetCode and no company wants to listen to my project. It is a technology that only needs internet access .. Do not use USSD, SMS, NFC, nothing. Simple, fast and efficient. If I were an American, or a Harvard/MIT graduate, was already working as a primary means of payment in the world.

I'm a bit overwhelmed by the range of responses to this blog post, it does show that there is a lot of anxiety out there about whether the mobile money/banking experiences out there are proving as fulfilling as we'd all hope.
To be clear, Dr Rengarajan, by highlighting the lackluster results on the ground I am questioning whether current approaches are good enough, not the ultimate objective. I don't see why banking technology should be frozen at today's levels. Do you agree banks should have IT systems, ATMs, switches enabling interbank transfers, call centers to address customer queries? So why might it not be appropriate to develop alternative channels that offer the opportunity of delivering superior customer experiences? I believe much of this can happen on commercial models, so your trade-off with mobile toilets is actually a false choice.
David, I share your concerns about the quality of the customer experiences that can be built on SMS and especially USSD channels. But fear not, time is on our side, the day is now not too far off when most people will have much more capable phones -- what we call smartphones. Then we will have much more leeway to construct mobile applications that truly reflect how people think about money, helping to turn the mobile phone into an intuitive money management tool. Think of using your finger to literally drag some representation of money across your screen to separate it out; think of then dragging the school icon onto that pile to lock that in as the purpose. What is being deployed now I call mobile money version 0.1; the first really good money management service, version 1.0, will run on smartphones. Smartphones will also get us telco independence and much lower connectivity costs (using the data channel). Then the fun will begin.
Vivek and Sanjay, of course acceptance is very important. But I don't believe that just getting all mom & pop stores to accept electronic money will make people want to store substantial amounts of electronic value in their mobile account. And that's because having a single lump of liquid value is simply not how most people want to manage their money. We need to give them the tools that make them feel they have the power to manage their money and control themselves. In my opinion, that's the "missing link" in the mobile money chain, sitting squarely between issuance and acquiring. Once people are comfortable that they can control money on their phone effectively, then they will look for convenient ways of deploying their electronic money when they make purchases, and electronic acceptance can then thrive.

Working in the US with the United Way Worldwide's Financial Inclusion project in a wealthy East coast community, I can say that the issues of accepting electronic money as a store of wealth discussed above seem to miss a number glaring concerns, e.g., mental attitudes toward asset vulnerability to theft externally imposed restrictions to access, dispute settlement costs and imbalance in power, and loss of control of transaction vehicle( telephone hacking). Not a day goes by that the daily news doesn't have a story about some sort of computer hacking and the impact on some major commercial entity or on the government. Poor people survive because they can exercise some direct control over their means of survival. The fact that some very advanced members of third world nations are beginning to trust the commercial vendors and systems built to support the banking business should not be considered significant progress against the ever present foreboding about losing one's liquid assets to theft or inpoundment. The issue of system trust must be addressed or people's risk aversion will dissuade them from putting liquid assets into a form that is subject to multiple sources of access disruption or loss. I'd really like to hear the responses to the glaring fact of loss of asset control in digitally mediated access systems.

Thanks Igancio for your prompt response and transparency in the blog. I am glad to note that demand side outlook has necessitated to raise the question on the validity of the present approach. Reg banking technology adoption It is good to have the same at back end and front end office inside the branch level. But when the same technology at client level with the given socio economic profile and the limited coverage /business group with super customer experience cause unintended consequences and exclusion of the bottom in the last mile. It is where the shoe pinches. Regarding priority for development at large at country level contextually in poverty rich continents, a deeper insights on demand side perception calls for welfare oriented outlook to go for Mobile toilet for escaping health vulnerability rather than institutional perception at surface level with commercial orientation for mobile money for trapping in financial risk in poverty segment. Demand side analysis needs more anthropological,( see Sibel Kusumba’s comments ) social and ethical orientation than mere economic calculus and commercial trade off which hardly leads to see the light at the end of tunnel in any development approach ,
Dr Rengarajan

This is very good analysis of the problem.
It is important to notice that money is an exchange that facilitates purchase of goods and services. If touch points, where exchange of money takes place for goods and services are not enabled simultaneously, cash outs are likely to happen and electronic money will soon lose interest and buy in. It is a catch 22 situation. The article does state, that to motivate merchants, it is important to increase holding in electronic money. But at the same time customers who are unable to use the electronic money for goods and services will cash out faster. So while experimentation with electronic money transfers has been proved successful, the second stage should concentrate uniformly on empowering both merchants, saving and investments through mobile money. This will ensure more usage, acceptance and hence success
This gets me to my second argument: mobile money has long been pioneered by operators. There has to be a mainstream foray by banks supported through operators as they are eventually the building block of an economy's financial structure. Central and subsidiary banks can enable all touch points, facilitate acceptance and flow of money and govern trade and micro finance through the system of accounting, checks and balances that is so intertwined with the economy. One of the reasons why we see such fragmented acceptance is because of who propels and facilitates mobile money – operators and gateways, institutions that actually do not form the core governing house for payment systems.
Moreover each economy and region has to be approached differently as the socio-economic realities are different and need peculiar insights and redressal.

What a refreshing post. I have been thinking a lot about mobile money recently and particularly in the context of Latin American countries, where the potential seems to be really high but in practice, not much can be said about experiences that really worked, and are successful in terms of improving financial inclusion and, are developed in a sound regulatory environment. Thanks for challenging our thinking.

Thank you, Ignacio, for your insightful article – and for the reference within your piece. At MasterCard, we believe in a world beyond cash, and the world beyond cash is also a world beyond plastic. Mobile technology is a key driver in realizing this vision, opening access to the economic mainstream in markets like Africa, which has, collectively, 1/9th the economy of the United States, but more than double the number of mobile phones. There has been an explosion of remittance and payment products that leverage existing mobile networks, and SMS technology supported by investment in payment agents. In 2012, we announced our Mobile Money Partnership Program to help consumers worldwide make purchases of goods and services via their existing mobile money accounts, as well as transfer funds and pay bills. As a company, we continue to innovate to define and enable the future of commerce and foster greater financial empowerment, where economic growth is more equitable, inclusive and sustainable.

A truly stimulating post from Ignacio.Definitely,one of the reasons mobile money users do not use it as a store of electronic value is because of the low uptake of using it as a payment means at merchants where people shop regularly e.g. groceries, department stores etc. In such a scenario there is no alternative to convert the electronic money into cash at agent points and use the cash to shop. However, there is one more catch here. Cash-out at agent points is chargeable under most of the mobile money deployments. This would mean mobile money users would prefer to withdraw all the electronic money and convert to cash in one transaction rather than preferring to store money and pay recurring Cash-out charges later.

Dear Ignacio Mas Thank you for the post. It is very much refreshing to see the rare analysis presented distinguishably for supply and demand side realities in this blog . The recent postings and the present one in the blog with demand side perspectives on the unintended outcome on the much hyped mobile magic in the poverty sector is of any indication , then it should be regarded as warning signals for further technological intrusion in the name of financial inclusion or branch less banking particularly in developing countries . It is revealing from anthropological field work to note MM as an adjunct to that social function not a separate banking function . I agree with Sbel Kushimbe. Besides MM not having value in the first place for the poor on one hand and serving small number of user groups on the other as pointed , it would also widen the inequality gap which is more harmful than poverty. Policy makers both at global and national level, need to think the priority in the development process to choose between “Mobile Money” or “Mobile toilet” in poverty rich continents – Asia and Africa
Dr Rengarajan

I also think technology is an inhibitor on the user-side of the equation. USSD and SMS interfaces are clunky and confusing especially to users who sometimes have little schooling and may share the device and therefore be an infrequent user of the phone.
I think when low-cost Android phones make their way to the rural poor around the world, we will see more adoption of branchless banking, more acceptance by merchants, and better service by agents. The process is often cumbersome and of too little value to agents.
More intuitive user experiences enabled by smartphones solves lots of problems.This will also enable better money management including the possibility of hiding some accounts as a way to fend off remittance requests.

Thanks Micah and Madhu for the kind words.
Micah, I don't think most stores would see inherent value in accepting electronic/mobile money from a safety/logistics point of view while only a minority of customers pay electronically. In this situation, you still have to deal with the usual volume of cash plus you know have the added headache of handling one more form of payment. But once a majority of customers do pay electronically, then you can start seriously taking cash out of the business, with all the attendant benefits. That's a classic coordination problem: stores will want it only if a majority of customers want it, but customers will only grow into it gradually. So in the early days, the business case for accepting electronic payments remains in offering customer choice and convenience, not letting your competitors woo those (few) customers who prefer to pay electronically, and preventing the odd customer from walking out of the store without doing a purchase for lack of cash.
Hello Sibel. I agree entirely with your analysis, thanks for sharing these excellent insights. Mobile money the way it is currently conceived has some serious shortcomings as a store of value, but I don't think it need be that way. Most people want to save, most people do save in some way or other, and a communication tool like the phone ought to provide the kinds of discipline and control mechanisms that people want around their money management. There are obvious ways to improve the mobile money service to make it more savings-friendly, reflecting the mental models and money management practices that most poor and non-salaried people live by. I'm not giving up on mobile savings: see my early thoughts on the topic at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2018807.

Hello Ignacio, thank you so much for your reply and the link to your paper. Sending money to your future self - an ingenious idea and it sounds like the perfect way to steer the money sending service into savings, I think it would be very successful. After all sending a remittance is a form of saving, as you will receive at a later time when it is your time of need. As you point out we need to be more flexible to the changing definitions of and means towards these different money behaviors.

You make really excellent points about the role of organizational culture - of both MNOs and banks - in impeding the growth of MM. I believe we can and should tackle changing the cultures of some of these organizations in order to allow MM to blossom. But any change, especially org culture change, will take a LONG time. Let's not give up. Can we find a few visionary leaders who are willing to transform their org's culture? Research indicates that Leadership impacts 70% of culture, which in turn impacts 30% of overall business results. In the case of MM, and as Ignacio points out, the impact of culture is even higher than that!

Our anthropological fieldwork done in Western Kenya in 2012 also found that people store very little value on phones. Using mobile money is a part of using a mobile phone, and a mobile phone is a social networking tool. People participate in the circulation of small, frequent remittances with one or more groups of people, such as relatives and friends or savings groups. Keeping value on one’s phone means that it is potentially “in circulation”. People avoid keeping money on their phones because of constant, even daily requests for remittances. It is not acceptable to say “no” to a loved one’s request. Instead people manage multiple handsets and multiple SIM cards for different kinds of contacts, or they even discard SIM cards and cancel MM account registrations to duck a request for a remittance. Managing mobile money is, like using a mobile phone, about social networking as much as (or more than) it is about financial behavior.
The minority who are “banked” and can afford the significant fees will send value from phone to bank account in order to save. We were told that if money is on the phone, it will be spent or sent to a loved one who needs it. Women who are members of savings groups were the only people we met who consistently used MM as a means of earmarking monthly contributions, probably because these contributions were sent via MM to the group’s treasurer. Another reason people have very little value on their phones is because they do not have the value in the first place. The entrepreneurs and others who use mobile money frequently, especially its banking features, are the minority. Subsistence farmers, the majority in the rural areas, have no value to store. Remittances in the settlement schemes among subsistence farmers are a coping mechanism and manage crises of all kinds, including lack of food, medical care and other basic needs.

I can shed some light on the reluctance to store value on phones based on my anthropological fieldwork in Kenya in 2012. People see their phone as a social networking instrument. Mobile money is an adjunct to that social function, not a separate "banking" function. People participate in small and frequent remittances with core groups of family members. Money on your phone is potentially "in circulation." Most people, even those without a lot of resources or money, experience frequent, even daily requests for remittances from relatives and friends. People keep several handsets or sim cards, change or cancel registrations - all in an effort to manage social networks - it is unacceptable to verbally refuse a request. The minority who have bank accounts send money from the phone to the bank account to further their savings and take that money "out" of circulation.. Based on our conversations and surveys only small numbers of people use their phone accounts for earmarking or managing money - and these are mostly RoSCA members who earmark their group contributions.
Another reason people do not have value on their phones is that they do not have value. The level of poverty in Western Kenya is great. We often model the MM customer as a small scale entrepreneur or someone who has access to value and its transformations in the first place. These are the lucky ones. Most people in Western Kenya are subsistence farmers with very little access to money. They send MM in emergency situations - mother has no food, my child has been sent home from school, I am stranded without transport. Remittances are a coping mechanism and a lifeline for people in poverty, and there is not enough money to save in the first place.

Per the norm, a great post from Ignacio. On the issue of merchant acceptance of mobile money, I'm curious on this community's thoughts on the demand side from the perspective of a micro or small business. There seems to be a constant voice telling us about cash's inherent costs, so wouldn't merchants be motivated to decrease their cash holdings by accepting mobile payments? But what costs do merchants associate with mobile money? Identifying these costs could lead to significant discoveries.